Enterprise: Brexit will provide second charge opportunities

The decision to leave the EU could provide "plenty of opportunities" for second charge finance lenders in the coming months, according to Enterprise Finance.

Related topics:  Specialist Lending
Rozi Jones
12th July 2016
EU house Europe flag Brexit
"Borrowers will continue to need secured finance for debt consolidation and home improvements – the sector’s bread and butter."

This could include an uptick in demand for secured loans as a method of debt consolidation. Prior to the vote, Bank of England figures showed consumer credit had risen £1.3bn month-on-month in April. With high levels of uncertainty, Enterprise believes borrowers may decide to consolidate their debt to make their payments more manageable.

Further, using a secured loan allows borrowers to pay lower interest rates than those on unsecured loans or credit cards. Should the Bank of England cut the base rate, this would make secured finance more affordable for potential customers.

Enterprise added that while some businesses in the property sector have been hit by the leave vote, "the fundamentals of the housing market remain sound".

However uncertainty means that homeowners may prefer to stick with their current home but invest money to improve it, rather than move. This could be good news for secured lenders, says Enterprise, as home improvements remain one of the most popular uses for second charge finance.

Harry Landy, Sales Director of Enterprise Finance, said: “It is too soon to say what the full effect of the decision to leave the European Union will involve. While lending volumes could decline, the EU referendum doesn’t compare to the last recession when there was a liquidity crisis, followed by huge tightening of risk appetites, which stopped lending dead. Post-vote, deals are still going through and for most lenders it is a case of business as usual. Some customers may take a ‘wait-and-see’ approach, postponing borrowing until the uncertainty subsides. However, as this won’t necessarily happen for months or years, many will want to raise additional finance sooner. Initial signs suggest this may be the case, with loans still being completed and new deals coming in.

“The fundamental drivers of demand for second charge loans are still in place after the EU referendum. Borrowers will continue to need secured finance for debt consolidation and home improvements – the sector’s bread and butter. There may also be more opportunities for lenders, should high-street lending decline. However, lenders will have to be responsible, given the uncertainty in the market. This means we may see a decrease in the average loan-to-value ratio, to ensure lenders minimise exposure to any future economic shocks.”

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